SAN FRANCISCO (CBS SF/AP) — Two San Francisco-based food delivery services companies are merging as Uber announced Monday it was acquiring Postmates in a $2.65 billion all-stock deal.
Uber and its Uber Eats food-delivery division will gain ground against DoorDash, which controls about 37% of the U.S. food delivery market. That’s compared with Uber Eats’ 20% share before the Postmates deal. Grubhub holds around 30% of the U.S. food delivery market, according to Second Measure, a data analysis company.READ MORE: UPDATE: CHP Announce Arrest of Man Who Rode in Back Seat of Driverless Tesla Across Bay Bridge
Last month, Uber lost out in a bid for Grubhub, which would have made it the dominant U.S. food-delivery service. But Amsterdam-based Just Eat Takeaway.com ended up nabbing Chicago’s Grubhub in a $7.3 billion deal. Uber was reportedly seeking to team Grubhub with its Uber Eats business.
The food delivery sector is undergoing a major consolidation this year and more is expected. The number of people using food delivery services is on the rise because of the coronavirus pandemic, but customers tend to jump around from service to service depending on where they can find the best deal.
Uber has leaned on its food delivery business with COVID-19 cutting into all ride-share businesses. Rides for Uber slid 3% in the first quarter compared with the previous years. Bookings through its food delivery business, on the other hand, surged 54% in the same period.READ MORE: 2 Dead In Horrific Collision On Marin Avenue in Berkeley
By acquiring Postmates, Uber not only gets the bigger share of the food delivery market it has long desired, but also shores itself up against further pandemic-related losses in its ride-sharing division.
“In our opinion, Uber finds itself with its back against the wall on the consolidation theme as the Grubhub deal fell apart on anti-trust concerns, and now must quickly look to acquire market share and added scale which makes the Postmates deal a smart strategic fit,” analysts with Wedbush Securities wrote Monday.
Postmates, a closely held private company, claims 600,000 food and restaurant merchants to choose from, which it claims is the largest selection in the U.S. The company says it has the ability to serve 80% of households across all 50 states.MORE NEWS: Fremont Teacher Accused of Committing Lewd Acts on Children at School, Tutoring Sessions
The boards of both companies have approved the transaction and the deal is expected to close in the first quarter of 2021. Shares of Uber Technologies Inc. surged more than 9% before the opening bell Monday.